Stock prices of major Washington area companies, as measured by an index of 30 representative firms, rose substantially during 1976 and outperformed the highly publicized Dow Jones barometer of 30 industrial blue-chip national corporations.

The Dow, which began the year at 852 and closed New Year's Eve at 1004.65, gained about 17 per cent in a Bicentennial year of often heavy trading.

But the Washington index, charted by Johnston, Lemon & Co., a leading regional investment banking and brokerage firm, closed out 1976 at a record high level after rising gradually throughout most of the year. The overall annual increase was 35.7 per cent, reflecting a general national trend of more investor interest in recent months for secondary issues often ignored in early stages of a market rally.

Johnston Lemon research analyst Henley Custis Hoge IV started charting local stocks about three years ago, using 1970 and 1971 prices for a base period equal to 100 on the index. The Washington Post began publication of the area stock index last June in its Sunday editions.

At the market close on Friday, the Johnston Lemon index stood at a record high of 74.082 compared with 54.575 on Dec. 31, 1975. During 1976, the local index never fell below the 1975 closing point.

After a strong opening, which saw the local index increase to 67.692 by the end of February, it trailed off for a few months until June 11, when it hit 60.599 and started another climb. Most of the second-half gain came since Nov. 11, when it rose by more than 10 per cent from 62.678 to Friday's closing for the year.

In a nutshell, Hoge said in an interview last week, "the whole index was wrapped up in Geico" - Government Employees Insurance Co., a large Chevy Chase auto insurance firm that plunged dangerously close to insolvency in mid-year before being rescued ultimately by its own stockholders, who grabbed up most of a new issue of preferred stock and helped bolster reserves.

Geico, long a favorite of area investors, had traded higher than $60 back in 1974 but began last year as one of many companies in an industry that was suffering record losses. Reflecting the general industry malaise and some Wall Street analysts' sour forecasts, Geico opened the year in the over-the-counter market at $11.50 a share bid.

In a few weeks, the sudden news bulletins from Chevy Chase started. Eventually, Geico reported a record $124 million loss for 1975 and announced drastic cutbacks to preserve viability. New management was brought in and former officers were fired. But the future looked bleak and the price of Geico stock fell below $3 a share - creating losses in the millions for some investors and leading to the personal bankruptcy of a Geico founder's heir.

The decline of Geico's stock also had a big impact on the Johnston Lemon index. Other companies' issues were advancing, generally, but Geico was holding back the overall index in the months through July.

"It was our demon and our ally," said Hoge last week of Geico's impact on the local stock index, referring to the dramatic rise in Geico stock since mid-November, which helped spur the index's overall rapid increase.

With news of Geico's operating profits in the third quarter and the firm's success in selling to stockholders and other insurance firms a $75 million issue of new preferred stock, investors have been bidding more and more to buy Geico common shares. On Nov. 19, Geico common was $4.125 bid, and by year's end it was quoted at $7.125 - an increase of nearly 75 per cent in six weeks but 38 per cent below last year's closing.

Thus Geico still was a drag on the overall index, but analysts are forecasting a turnaround for the auto insuror this year, and that supports Hoge's prediction of more gains for the local stock index in 1977.

The largest single increase for the 30 local issues in 1976, was registered by The Washington Post Co., traded on the American Stock Exchange. Post Co. closed 1975 at under $21.50 a share in the midst of a strike by pressmen that led to investor uncertainty but did not affect profits dramatically, Hoge noted.

By the end of 1976, Post Co. was at $25 a share - but only after a 2-for-1 stock split which added up to annual increase of 132.6 per cent in stock price. Hoge cited record levels of earnings for the company as the year progressed and the stock split as key factors in investor buying.

Other big gainers in 1976 among the 30 issues charted by Johnston Lemon were:

People Drug Stores, from $5 to $8.875, a gain of 77.5 per cent, reflecting investor confidence in the new management and control by Lane Drug, whose merger with Peoples was completed during the year along with new financing, remodeling and expansion plans.

Washington Real Estate Investment Trust, from $14.75 to $23.75, an increase of 61 per cent, reflecting continuous growth of earnings and dividends based on ownership of stable Washington area properties, including apartment houses granted rent increases in 1976.

International Bank of Washington, a financial services miniconglomerate, from $2.75 to $4.375, an increase of some 60 per cent. A major factor in IB's earnings growth was recovery of its insurance subsidiaries.

Martin Marietta Corp., from $16.25 to $25.75, an increase of 58.5 per cent based on earnings gains from diverse interests in aluminum manufacturing, aerospace, chemicals and building materials.

Macke Co., from $4.125 to $6.50 a gain of 52.9 per cent for a firm under new management that recently reported record earnings and a new financing package, designed to spur growth by acquisition.

Financial General Bankshares and First Virginia Bankshares, two bank holding companies with major holdings in metropolitan Washington, whose stock prices climbed about 50 per cent during the year - Financial General from $5.50 to more than $8 and First Virginia from $5 to more than $7.

There were a few losers, too Marriott Corp. declined to less than $14 from more than $16 in the past 12 months, despite significant earnings growth in recent periods that reflected initial amusement park operations - whose long-term contribution remains to be seen.Dart Drug and Mortgage Investors of Washington also declined but not by large dollar amounts.

Hoge said Johnston Lemon "looks for a favorable atmosphere in general for the stock market and local securities" in the new year. He said interest rates will decline a bit more or at least remain stable, contributing to some large gains in profits for financially oriented firms in 1977.

The 30 locals stocks measured by the index published in Sunday editions of The Post are adjusted for splits. Each firm selected has at least $30 million of assets and 1 million shares of common outstanding.

A list of the 30 stocks follows: Allegheny Airlines, American Security Corp., Communications Satellite Corp., Criterion Insurance, Dart Drug, Drug Fair, Federal National Mortgage Association, Financial General, First Virginia Bankshares, and Garfinckel, Brooks Brothers, Miller & Rhoads.

Also, Giant Food, Geico, Government Employees Life, International Bank, Macke, Marriott, Martin Marietta, Mortgage Investors of Washington, Peoples Drug, Potomac Electric Power Co., and Riggs National Bank.

Also, Quality Inns, Southern Railway, Suburban Bancorp, Saul Real Estate Investment Trust, United Services Life, Washington Gas Light Co., Washington Post, Washington Real Estate Investment Trust and Woodward & Lothrop.